Infusing Capital - The Do’s and Don’ts of Pitching to Investors
Pitching to investors is a rite of passage for software entrepreneurs. In fact, it’s more than a rite of passage – it’s an essential part of taking your business from concept to reality, and ultimately to success. The ultimate goal is to get investors who will be valuable partners in your endeavor, offering the necessary capital, guidance, and connections that your company will need to grow.
But it’s a delicate process. The initial pitch, if not handled properly, can sink the ship for even the greatest ideas. People that have been through it have the scars to prove it. That’s the beauty of experience – you can learn what to do and what not to do.
Here are some important lessons learned – the do’s and don’ts – to remember when pitching to investors.
Do – Complete your Homework before Pitching to Investors
Know your stuff. Your audience may know nothing about what you are doing, or they may be experts. Either way, they will have many questions. That’s to be expected. What is essential is that you build their confidence by knowing your numbers backward and forward, knowing the market, and the competitive landscape. Show them you have great insight into market activities – that you have considered all possibilities.
It’s a myth that investors thrive on risky endeavors. Often, it’s the contrary – they seek certainty. You cannot promise certainty (nobody can), but you can build a lot of confidence by showing you have done your homework.
Do – Tell a Story
Your investors must share your dreams and aspirations. Getting them there takes a compelling story. Your job is to present a story to which people can relate. You need to take the audience to the customer’s point of view. Most people will mention these points, but it’s the way you take them there that often makes the difference.
Don’t – Jump Right into the Product
This is a key part of telling a story. You cannot just jump right into talking about your wonderful product. The audience needs context. They need to understand why your product is even necessary. They need to come at the problem from the customer’s point of view.
So, lay it out for them. Explain to them:
- The business problem
- Why other approaches aren’t sufficient
- Where the customer’s pain points lie
Do - Show a Clear Economic Model
If it takes a complex chart to show how the money will flow, then you have likely lost your audience’s attention. You are probably not the only one out there doing what you do.
Show them that you understand:
- How your brand can step up and overcome the others
- The customer’s needs
- The competition
- Your strengths and how to use them
- The other guy’s weaknesses and how to exploit them
Don’t – Follow a Proposal Template
Investors will not pore over a lengthy document to eventually find the nugget at the end. That’s not the way the world works. Be original. Show you can produce a customized proposal that speaks to them.
Do – Get to the Point
When you explain your story, do not ramble on for too long. Get to the point quickly. Show them why it matters. You must intrigue them and give them the picture in a brief time frame. If it takes too long, you will lose them.
Do – Have an Executive Summary Ready
Have a carefully thought-out summary of the investment proposal. The longer form is the business plan, the shorter form is the executive summary.
Your executive summary should pinpoint the:
- Problem the company will be solving
- Size of the market you will be entering
- Competitive advantage
- Investor’s exit
Do – Be Realistic and Honest
This is one area that is not really negotiable. Exaggerating the case may work in the short-term as you may get some cash. In the long run, however, the lost credibility, disgruntled investors and failed reputation will make you suffer immensely.
Don’t – Fail to Listen
Investors will probably ask questions, many of which have been asked before.
However, some people don’t respond well to suggestions for changing their business model. This level of resistance may cause a thoughtful investor to move on.
Our advice is to do your homework mapping out different scenarios and identifying the options you could live with and the ones you cannot. That way, if you must tell a potential investor that you would rather not change your plan, at least you can offer a reasonable explanation. It shows you have a vision.
Do – Boast About your Dream Team
Investors are not just showing a commitment to your idea. They are investing in you and your people. Show them that you are behind your people. Have somebody in charge of every detail – the investors shouldn’t think that something could fall through the cracks.
Do – Describe the Investor’s Exit
The final point on this list – the investor’s exit – is important. Too many startups are focused on their business plan and the potential future for their business ideas, but fail to foresee the outcomes for the investors. From the investor’s perspective, that is the most important aspect.
For many investors, this is the part where you talk about their payoff. Don’t forget to give them what they came for!
What are your experiences about pitching to investors?
What has worked and what hasn’t worked?
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